While proponents of cigarette taxes often claim tobacco tax hikes affect only people who smoke, they have “serious fiscal consequences” for smokers and non-smokers, according to a National Taxpayers Union Foundation study released this week.
States with low cigarette taxes have overall tax burdens that are almost always below the national average, the group found. States with the highest cigarette taxes, which includes New York, “often have remarkably higher-than-average tax burdens.” The average per capita state and local burden in the 16 places where the per-pack cigarette tax was highest was $1,356 higher — 39.4 percent — than the national average in the 2010 fiscal year.
The total tax burden in the 15 states with the lowest per-pack cigarette tax in the country was $892, or 21.6 percent, below the national average. New York last increased its cigarette tax in 2010 — adding $1.60, for a total of $4.35 a pack.
The foundation said the results of its study “strongly support the hypothesis that cigarette tax hikes are associated with the political tendency of raising taxes on other activities and products.”
Other findings in the report:
— Tobacco tax hikes are rarely used to cut other taxes. What commonly follows the tobacco tax hikes are other tax increases, or tax cuts worth less than the tobacco tax increase. Between 2008 and 2013, just two out of 40 revenue actions raising the tobacco tax were followed by cuts in other taxes, based on data compiled from the National Association of State Budget Officers.
— Tobacco taxes don’t forestall other tax increases. In fact, they tend to be followed within a short period of time by revenue actions that hike taxes on other goods and services. Between the 2007 and 2011 fiscal years, 25 of 37 increases in tobacco taxes around the country were followed by additional tax hikes.
— Tobacco tax hikes may encourage other tax hikes in the future. Politicians often justify the other increases “by saying that they can use the additional revenue to plug budget deficits and/or fund programs in areas like health care or education.” States frequently don’t give accurate estimates of how much a cigarette tax hike will bring in, and revenues often fall short of the projections. As a result, additional tax revenues are sought to continue funding the programs and avoid budget cuts.
Initial revenue projections were met in just 29 of 101 cases in which cigarette/tobacco taxes were increased between 2001 and 2011, according to data provided by state revenue departments.
A reduction in the percentage of adults who smoke could be part of the reason the estimates fall short. It’s possible that politicians may exaggerate revenue outcomes to initially enlist more support for it, the study said. Another reason is that consumers often start using alternative products that are taxed at lower rates, such as roll-your-own cigarettes. Cigarette smokers may also make purchases online or in states where taxes are lower.
The National Taxpayers Union Foundation cited a study by the Mackinac Center for Public Policy in Michigan estimated that New York was the highest net importer of smuggled cigarettes in 2011, which accounted for 60.9 percent of the total market.
— Cigarette taxes don’t spur economic growth. On average, state-level governments that enacted tobacco tax increases in 2009 had a lower growth rate (1.09 percent less) than those that didn’t implement such increases.